Just Saying Yes to Drug Companies

America pays far more for drugs than any other major nation.CreditChristopher Lee/Bloomberg

Last week we learned that Novartis, the Swiss drug company, had paid Michael Cohen — Donald Trump’s personal lawyer — $1.2 million for what ended up being a single meeting. Then, on Friday, Trump announced a “plan” to reduce drug prices.

Why the scare quotes? Because the “plan” was mostly free of substance, controlled or otherwise. (O.K., there were a few ideas that experts found interesting, but they were fairly marginal.) During the 2016 campaign Trump promised to use the government’s power, including Medicare’s role in paying for prescription drugs, to bring drug prices down. But none of that was in his speech on Friday.

And if someone tries to convince you that Trump really is getting tough on drug companies, there’s a simple response: If he were, his speech wouldn’t have sent drug stocks soaring.

None of this should come as a surprise. At this point, “Trump Breaks Another of His Populist Promises” is very much a dog-bites-man headline. But there are two substantive questions here. First, should the U.S. government actually do what Trump said he would do, but didn’t? And if so, why haven’t we taken action on drug prices?

The answer to the first question is a definite yes. America pays far more for drugs than any other major nation, and there’s no good reason we should. Basically, when it comes to drugs, we’re Big Pharma’s sucker of last resort.

Bear in mind that the way the drug business works can’t and doesn’t bear any resemblance to the Econ 101, supply-and-demand stories beloved by free-market enthusiasts. What we have, instead, is a patent system in which the company that develops a drug is granted a temporary legal monopoly over sales of that drug. That system is O.K., or at least defensible, as a way to reward innovation; but nothing about the logic of the patent system says that patent owners should be free to exploit their monopolies to the max.

There is, in fact, a very strong case for government action to limit the prices drug companies can charge, just as there is a strong case for limiting monopoly power in general. And the fact that taxpayers pay a large share of drug costs both reinforces the case for limiting drug prices and gives the government a lot of leverage it could use to achieve that goal.

Of course, draconian controls on drug prices could discourage innovation. But that’s not what anyone is talking about, and the benefits of moderate action would almost surely exceed the costs, for a variety of reasons: Drug companies would make less per unit but sell more, they would spend less developing drugs that largely duplicate existing medication, and more. Oh, and America, with its unique unwillingness to bargain over drug prices, is basically subsidizing the rest of the world. Wasn’t Trump supposed to hate that sort of thing?

So why aren’t we doing something about drug prices?

It’s true that simply granting Medicare the right to negotiate prices wouldn’t do much by itself. We’d also have to give Medicare some bargaining power, probably including the right to refuse to cover drugs whose prices are exorbitant. And before you denounce this as “rationing,” remember that before 2003, Medicare didn’t pay for drugs at all.

Still, saying no might anger some Medicare recipients; polls show overwhelming public support (92 percent!) for allowing Medicare to negotiate lower prices, but that support might erode once people realized what effective negotiation requires.

But questions about the details aren’t what’s stopping action on drug prices, since we haven’t even gotten to the point of letting Medicare try to bring prices down. And the reason we haven’t gotten to that point is, sadly, both simple and crude: Pharma has bought itself enough politicians to block policies that might reduce its profits.

I’m not just talking about campaign contributions, either. I’m talking about the personal enrichment of politicians who serve pharma’s agenda.

After all, who put together the 2003 Medicare Modernization Act, which put taxpayers on the hook for seniors’ prescription drug costs but specifically prohibited Medicare from negotiating prices? The answer is that it was largely devised by then-Representative Billy Tauzin, Republican of Louisiana — who shortly thereafter left Congress to become the highly paid president of the Pharmaceutical Research and Manufacturers Association, the industry’s main lobbying group. If that sounds remarkably raw, that’s because it is.

And Trump, far from draining this swamp, invited it in to the executive branch. Tom Price, his first secretary of health and human services, was forced out because of his lavish travel spending — but his pharma-related conflicts of interest were actually a much bigger deal. And his successor, Alex Azar, is … a former drug company executive whose stated views on drug pricing are completely at odds with everything Trump said in the campaign.

The bottom line is that American exceptionalism has prevailed again: We’re still the only major nation that lets the drug companies charge whatever they like.